Comcast Earnings Grow 15% On Good Broadband Growth

Comcast recently posted its earnings for the second quarter with strong gains in broadband operations. NBCUniversal benefited from solid growth in its theme parks business driven by higher attendance. The broadcasting revenues grew 5% driven by higher retransmission consent and content licensing fees. NBC has now secured the Olympics rights until 2032. This is great news as the network has seen significant benefits from sporting rights, the latest being the $1.1 billion revenue generated in Q1 2014 from the telecast of the Winter Olympics.

The cable giant lost just 144,000 video subscribers, reflecting best second quarter in the past six years. The company continued to benefit from triple play bundling and posted 3% growth in cable communication revenues. Earnings per share rose by 15% to $0.75. Overall, the cable mammoth posted good results with balanced growth in its cable communication as well as NBCUniversal segment.

Broadband was the largest contributor to cable revenue growth, with revenue increasing 10% to $2.81 billion, driven by continued growth in the customer base. Comcast added 203,000 new broadband customers in the second quarter. Business Services saw a 22% jump in revenues to $965 million. Growth in broadband was driven by rise in demand for speed and connectivity. Around 47% of Comcast’s broadband subscribers receive Internet speed of more than 50 MBPS, reflecting the demand for high-speed connectivity. The use of multiple devices and higher penetration of smartphones is aiding the overall demand for high-speed Internet.

Currently, broadband coverage in the U.S. is around 70% and it is estimated to reach 74% of households in the next four years and cover more than 90% in the long run. Cable industry will benefit from this growth as it accounts for close to 60% of the U.S. broadband market. Comcast itself is the largest player in the industry with close to 25% market share of the U.S. broadband market. Given the surge in demand, we expect Comcast to continue to gain broadband subscribers in the near term (Read More – Comcast Will Continue To Benefit From U.S. Broadband Growth).

NBCUniversal Benefits From Broadcasting And Theme Park Operations

NBCUniversal revenues were flat at around $6 billion during the second quarter. While the theme park revenues jumped 13%, filmed entertainment revenues dropped by 16%. The movie business was sluggish due to fewer releases and a tough comparison with the previous year quarter, which benefited from the success of Fast & Furious 6. Theme parks benefited from higher attendance and per capita guest spending, partly due to timing of Easter holidays. The company’s broadcasting segment revenue grew 5% to $1.8 billion driven by higher retransmission consent and content licensing fee. However, advertising income declined by 1.7% due to fewer hours of programming of The Voice as compared to the prior year quarter. The broadcasting network ended the season at top spot in the key 18-49 demographic for prime time (Also See -How Is The Broadcasting Business Trending For NBCUniversal?).

Pay-TV Subscriber Losses Decline

We estimate that the pay-TV operations contribute close to 35% to Comcast’s stock value. Cable companies have lost thousands of subscribers over the past few years but Comcast managed to turnaround its subscriber losses in the previous two quarters primarily due to its triple play bundling. During the second quarter, it lost 144,000 video subscribers as compared to 162,000 it lost in the prior year period. The better subscriber trend in the second quarter was again a result of high triple play bundle sales, the best in past three years. However, we believe that the turnaround will be shortlived given the combination of market saturation, fierce competition, and the increased focus of providers on acquiring higher-value subscribers. Moreover, rise of alternate video platforms such as Netflix is adding to the woes of pay-TV operators (Read – Comcast’s Pay-TV Subscriber Turnaround Will Be Shortlived).

Pay-TV revenues were up 1.2% to $5.24 billion during the quarter primarily due to rate adjustments. It must be noted that 57% of Comcast’s pay-TV subscribers are either HD or DVR customers. Since pay-TV operators charge additional fee for advanced services, higher penetration of HD/DVR will translate into higher monthly subscription fee for Comcast.

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